The era of “cinematic strokes” in the Indian equity markets and a “China-plus-one” narrative is meeting a structural ceiling. In its newly released 2026 Strategy Outlook, global brokerage Bernstein has officially downgraded Indian equities to ‘Neutral.’
According to the findings of Bernstein’s Venugopal Garre and Nikhil Arela, the India story is not entering a crisis, but it is becoming “burdened by its own past.”
The Bernstein report suggests a transition to a “quiet year” where the Nifty target is pegged at 28,100, a modest 7.5-8%upside from current levels.
1. The $100,000 H-1B reality check by Bernstein
One of the most striking findings in the Bernstein report is the impact of the US executive order on the Indian IT sector. The report signals a seismic shift where H-1B visa fees for new petitions have been hiked to a staggering $100,000. This represents a nearly 9,000% increase from historical levels
Bernstein’s research indicates that for Tier-1 firms like Tata Consultancy Services, Infosys and Wipro this fee makes sending mid-level engineers to the US economically unviable. The brokerage notes that while the IT sector might serve as a temporary hedge against broader trade volatility, the “structural overhang” of these costs is undeniable. Bernstein expects this to trigger are-calibration of the offshore-onshore delivery mix, forcing a pivot toward local US hiring and acceleration of AI automation to protect eroding margins.
The report suggests that the “easy growth” era for IT is over, replaced by a survival-of-the-fittest scenario where only those who can decouple revenue from headcount will thrive.
2. Bernstein warns of “exhausted” policy levers
A key driver of India’s bull run has been the government’s aggressive fiscal push, but Bernstein cautions that this phase is largely behind us. As the report puts it, the last few years saw the state deploy “the most potent tools in its arsenal to keep the Indian growth seem like a fairytale,” leaving little incremental firepower ahead. The growth impulse from major corporate tax cuts and GST reductions announced in 2025 has already peaked, with Bernstein warning that the remaining support is now limited to “the fading effects of the tax and GST cuts already undertaken in 2025.”
“The last few years have seen the government use the most potent tools in its arsenal to keep the Indian growth seem like a fairytale. What remains now is 50-75 bps of further rate cuts at best and the fading effects of the tax and GST cuts already undertaken in 2025,” the report noted.
Bernstein’s data shows that the room for further monetary easing is shrinking rapidly. The brokerage projects a maximum of 50 to 75 basis points in further rate cuts. Beyond this, the central bank’s hands may be tied. Furthermore, the post-pandemic script of “accelerate capex while shrinking the deficit” has reached a point of exhaustion.
The problem, as Bernstein highlights, is that private capex remains on the “back foot.” Capacity utilization in India has stagnated at around 75% for four years. Without a significant revival in private investment, which Bernstein notes is still tentative, the economy risks a “quiet” stagnation rather than the “cinematic” acceleration investors have paid a premium for.
3. The Valuation trap and Bernstein’s “Neutral” verdict
Bernstein points out that India enters 2026 as one of the most expensive markets globally, trading at over 20 times forward price-to-earnings (P/E). This stands in stark contrast to a 15.1x average across 15 other major global economies.
Even with what Bernstein calls an “optimistic” earnings growth assumption of 13.5% (CAGR) through FY28, the brokerage characterizes 2026 as a “year of adjustment.” Bernstein suggests that while a potential US-India trade deal could provide “point trades” or temporary rallies, these are unlikely to be sustainable catalysts for the broader market.
Bernstein’s sectoral pivot: Key focus areas
Despite the broader downgrade, Bernstein’s research does not advocate total exit. Instead, it suggests a tactical rotation. The brokerage has upgraded the Real Estate sector to “Overweight,” viewing it as a “catch-up” play that can withstand the broader market cooling.
Bernstein also maintains a preference for Financials and Telecom, sectors it believes have the balance sheet strength to navigate a year of lower liquidity and higher operational costs. Conversely, the report cautions against sectors heavily reliant on government tender flows or those with extreme sensitivity to global trade barriers that might arise from the evolving “America First” policies.
The end of momentum-chasing
Bernstein notes that India enters 2026 “as one of the most expensive markets globally” and warns that “years with limited catalysts are more of a valuation play and catch-up trades rather than earnings driven.”
The firm cuts India to ‘Neutral’, not because the story has turned negative, but because it might be a bit quieter than one we’ve seen before,” adding that “policy levers are largely exhausted and macro as reflected by real GDP growth is closer to a peak.”
On growth drivers, the report cautions that “an extensive China+1 exodus from the northern neighbor should be stalled,” while domestically, “the last few years have seen the government use the most potent tools in its arsenal,” with “nobody to step in as govt lifts feet off the accelerator.”